Financial Tips for College Graduates

College graduation like when you beat Ganon, the resilient bad guy at the end of the classic video game, The Legend of Zelda, for the first time. You’ve been through many levels of challenges, perhaps even used a few “cheats” along the way, and did anything necessary to grow your knowledge and skills, many of which were necessary for the final test of strength.

You’ve saved Princess Zelda and were rewarded by watching one final scene and reading the names of computer programmers as they parade up the screen. You were relieved that your journey was finally complete, but before long, you realized there was more to the game.

Suddenly, you were presented with the option to begin your next journey. Your character, Link, displayed a new sword to indicate the completion of the first journey. This newly brandished sword is like your degree. With your degree in hand, it’s time to face a new world, one that is uncharted. (The map to this “second” Zelda adventure did not come with the video game.)

After graduation, it may take a moment for some to realize that you are now in control of your life and the decisions you make can have a profound effect on your future. Here are some ideas to help you, the graduate, make solid financial decisions.

1. Actively manage your expectations. You may have friends who have already graduated. They’ve provided you with endless entertainment as they talk about the “real world.” By now, you will have heard about new cars, new houses, new weddings, new kids, new relocations, new implants, and new gardeners, and you’re looking forward to sharing similar experiences.

With jobs, they have been receiving a steady income, probably sizable, and have been spending their money almost as quickly as they have been earning it.

Actually, they have probably been spending their money faster than they have been earning it, but that piece of information will be curiously missing from their stories. What your friends didn’t tell you about is debt. Ask them about their retirement plan and IRA. Ask them about their budget. You’ll likely receive blank stares, and not just because you’re being a stick in the mud.

It’s best to ignore these types of stories because the danger comes when you expect that this is how one must live life as an adult. This is actually quite expensive and detrimental to your future. By managing your expectations, you won’t be disappointed when you can’t find a management position earning $100,000 with no experience right out of college, even if your friends tell you that’s what you should look for. You won’t be disappointed when you have to settle for sharing an apartment with several strangers or moving back in with your parents until you are able to afford your own bills and establish an emergency fund.

Simply, don’t try to keep up with the “Joneses.” This hypothetical family’s perceived wealth is mostly an illusion and it’s best to focus on yourself rather than others.

2. Choose your first job carefully. Your first job sets the tone for your future earning power, particularly if you expect to stay in the same career until retirement. Earning more in your first job out of college not only allows you to save more and be flexible with your budget, but it also makes it easier to negotiate better salaries when future opportunities arise.

That being said, don’t select your first job with money as the solitary driver. It’s quite possible that the path you’ve chosen starts out without much opportunity. If the job that interests you is not in high demand, then you will have to settle for what is available. Like a professor told me as I was pursuing music education in college, “If there’s any other career that could possibly make you happy, consider changing majors.” If you are pursuing your calling, be prepared for a bumpy ride as you progress, mentally, physically, emotionally, and financially.

3. Pay off debt. Many college graduates leave school with credit card debt. While in school, education is your first priority, so depending on your course load’s aggressiveness, you may not have had a job. However, you still had expenses, and your parents may not have provided for you. This is perfectly normal, but it must be attended to immediately.

Unless you are starting in an industry where image is important, it’s time to pay down your debt. With newfound income due to your first job, put any available funds into paying off your credit card balances, and do not add new credit card debt under any circumstances. The debt avalanche is the most mathematically pleasing solution to paying off credit card debt.

Chances are you have student loans to pay off as well. Consolidate these when possible to take advantage of lower rates, but don’t slow down your repayment. You may decide to get your master’s degree, and it’s best to do so without compounding more student loan debt.

4. Automate your savings. Automation is the key to creating habits without having to change your behavior much. If you have a new job and your employer is somewhat familiar with twenty-first century technology, they will have direct deposit available. This will allow you to deposit your paycheck directly into a checking or savings account (and a high-yield savings account is preferable).

From the savings account, you can decide how much you need for spending money each week and how much you need to pay your bills each month. Transfer only what you need and leave the rest in the account earning interest. Work with your bank to create instructions for these transfers so they take place automatically.

5. Investing basics: Open an IRA and 401(k). Once you’ve automated your savings and are in control of your bills, you may have noticed you have money left over. Rather than buying a new car for $4,000 down and monthly payments of $300, you started with a used car for $8,000. With your saved payments, you can open a Roth IRA to take advantage of what will probably the lowest interest bracket you’ll ever be in.

If your employer offers a 401(k) or its cousin the 403(b), take advantage of this option as soon as possible. In many cases, companies offer “employer matching” contributions; for example, for every $1.00 you contribute, your company may thrown in an extra $0.50, you to one-eighth of your salary. This is free money, and you should accept it without question. Invest in your 401(k) at least to the limit of your employer match.

Your 401(k) may have some confusing options. If an index fund is available, that should be your first choice. Otherwise, your company may offer an automatic rebalancing plan based on your age or years until retirement, or a mutual fund that does the same. That may be a good choice for the novice investor.

6. Develop a plan, but be flexible. Your friends’ stories were missing something. While they spoke of all the exciting things they are buying and doing, they didn’t mention to you where they’d like to be in 5, 10, 25, or 40 years. Perhaps they have some vision of what their future might hold, but they don’t have a plan, something that will explain how they will get to that point.

If you haven’t already, decide where you want to be with your life in the short-term and the long-term. Think about not just the size of your bank account, but about all aspects of your life. For each goal, determine what you will need for its achievement. This doesn’t have to be exact, and without much experience in the workplace, you shouldn’t expect it to be.

Now that you have your plan, expect obstacles preventing you from reaching your goals, but also expect things that will require you to change your expectations, much like the first point above. It is said that people fall in love when they least expect it. Suddenly your own plans must incorporate someone else’s. It’s important to be flexible, because life has a habit of finding its own course.

7. You only live once. It’s important to think about the future and make the wisest financial decisions. But this is your life, and it’s the only one you get. Balance your future plans with making the most out of today’s experiences. Remember that money isn’t the most important thing in the world, but it does let you do some amazing things.

If you enjoyed this article, please share it with your friends and other college graduates close to you by passing it along.

I would not put too much emphasis on the first job, especially if the student studied hard an graduated without debt. The “real world” is a time to experiment, see what work preferences are, and maybe take a year off and work as a ski instructor. Of course if the student graduates with a mountain of debt, they have no choice but to graduate and put their nose right to the grindstone.

I would say that the first job IS essential to building your career. Future employers frown upon someone with employment gaps, or inconsistencies. A college grad should be at his or her job for at LEAST a year in order to secure good recommendations and a stepping stone onto the next opportunity. College is the time to figure out where your life is headed and to do internships. Now, if you are planning on going back to school to attain a master’s then that is when entering the real world could be delayed. “Kids” are allowed to be kids far too long.

I like number 2. I just graduated and am making $9/hr working as a deli clerk while I look for a job in my time off. The hard thing for me has been the decision to wait on getting a better paying job and study for a certain professional exam or just go out and get a job that pays better but is not in the field that I studied for. If I wait and take the exam I am looking at another 6 months as a deli clerk. If I look for a better paying job right away I end up working shift work at a power plant. The smell of that Deli makes me want to just get a better paying job and not wait.

Great points, I especially like the ending. There are lots you can and should do to be financially responsible, but the more difficult underlying theme is finding the right balance of fiscal responsibility and living your life.

Moderation in all things, including moderation. I agree that this is a time to explore and figure out what path you want to take — but while you’re making that decision, new graduates, remember that you’re on a path right now.
Sure, some jobs literally stink. But if that $9 an hour helps you pay down any debt or establish that EF that Flexo mentioned, keep it until something better comes along. With luck that will be something in your chosen field. If not, then keep walking that path until the roads diverge — or bushwhack your way to creating a path all your own.
Remember, though, that any debts will keep building. Make it a priority to avalanche them away. And yes, *do* open a retirement account. Your new friend compound interest will make you glad you did.

#3 is very good to follow because it’s so easy to accumulate debt. I just paid off a 5 year loan in under two years and now i’m trying to pay off my credit card debt. College graduates in the economic times we live need to keep all their options open.

All these tips are great, and I hope my college-age kids are listening to me when I each time I try to use the “teachable moments” to show them how the real world works. However, I must add one thing I think is really important, and that is “if you have the time and don’t have massive student loans or credit cards to pay on, this is the time to travel.” I’m encouraging all of my kids to get some stamps in their passports before they take on life’s big committments, like marriage, mortgages, kids, 60-hour workweeks, etc. I just think traveling the world opens a person’s eyes to other cultures and ideas like nothing else can. Remember when riding the Eurail Pass through Europe was a big thing to do in the ’80s?

I didn’t have a clue when I got out of college how to handle money and debt. These are great tips and I am working hard with my own two kids to teach them the skills they need now to have financial success later. I have seen many a young person go out in to the “world” without a clue on how to prepare for the financial future. It may be intimidating but it is very necessary

I think these are great and shared with my young coworker. She is chomping at the bit to get a real position in our office. But she also shares with me her huge mountain of debt. She is on the right track living at home and paying them off. But she acquires new ones just as fast since she NEEDS that outfit, shoes, weekend away, night out with the girls or whatever. I feel sorry for her and maybe this will help to know that not only the “old lady” (only 46) in the office thinks this way.

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